Why comment on this acquisition? Google buys a company known for making your thermostat “smart”. But in so many ways it looks like a smart move and a logical move. Technology has changed our lives in so many ways over the past 25 years, but those first 25 years were confined to devices that housed the technology, the PC, the Smartphone, the tablet etc..Now we are seeing a different trend emerge as the technology now makes its way into everyday devices, many of these devices have been around for a hundred years. Many have not changed a whole lot in those years, but change is now upon them where they will leapfrog in the coming decade what they did in the previous century.  Google’s purchase of Nest will have many ramifications in the industry and across industries and promises to set wheels in motion for both the right reasons and the wrong.

I ditched on the PC a bit in my opening statement, but I should retract my statement a little as it was one of the first example’s of a device several hundred years old being updated, namely the typewriter.   Does anyone remember these devices, which were rather loud as individuals punched the keys. When you made a mistake you needed whiteout. With the advent of the PC things were simplified.   You could easily edit a document. Not only could you now write long documents you could save and file them away without ever having to use a printer if you did not want or need to.  Overnight the college nights spent writing term papers that took forever with the old typewriter were out and a new tool was available that allowed us to easily type, format and print a final document in a professional manner.  The typewriter really had not gone over much fundamental change since Johannes Guttenberg invented the printing press in 1450, it had pretty much been ink and paper for over 500 hundred years

So what is NEST and why should we care? Well if you think of our typewriter example there are a lot of devices in the everyday house that have not undergone a lot of fundamental change since their inception .  NEST basically got in front of two household items: the thermostat and the smoke detector.  Industries are about to go under fundamental changes as technology evolves every device.  Items like refrigerators will be made more efficient by the software, while providing manufactures more information on their use as all devices will be connected to the network. You see examples of this from both old companies like General Electric and new companies, such as the one that was just acquired, NEST.  But beyond efficiency we are really talking about making many old household devices from refrigerators to washers and dryers smart and on the internet grid.

We can analyze the acquisition by Google in a number of different ways, but make no mistake this is about the future of technology and where it is taking us.  Should we be concerned?  Certainly.  The internet has fostered an environment where corporations (and our government) can track user behavior in ways never before imagined.  At first this was limited to what you did on your laptop or desktop.  With the emergence of connected devices we could get to a point where all our actions in the home are tracked and stored.  Any event that occurs in your household can be accessed and turned into a sales and marketing opportunity for some and soon to be many corporations around the globe.  This is why the acquisition of Nest by Google has been met with a degree of skepticism.  We already as a society are a bit freaked out by the Edward Snowden and NSA leaks.  Now companies want even more of our private data.  If all this behavioral information is really about you, is it yours and should you get a kickback in dollars?

Fundamentally our right to privacy is being challenged.  It is happening softly as we browse the web and purchase connected devices, but longer term could have very hard and serious ramifications.  Any web page you type in is captured information.  There are benefits.  I enjoy when I go to Amazon that it knows what books I am interested in or music and offers up suggestions and deals.  The price you pay is you do not own that information, you have given that over to Google, Amazon or Twitter.  As we have seen when national security becomes a significant and real issue the government can come calling in a clandestine method.  Does Google in an effort to aid the government in a terrorist investigation hand over specific information to that case or just dump a bunch of information for the FBI or NSA to pursue?  Now that privacy is about to be further challenged by our thermostat and smoke detectors.

What in the end makes this acquisition both daunting and exciting is the disruptive nature of technology.  Google is entering an area where the traditional players were the utility companies and the old big American corporation, like General Electric.  For the utility companies this is upside as a more efficient method of monitoring and distributing heat and electricity means they will not have to build power plants as often, a huge capital expense.  Of recent times given the every increasing demand for energy something any utility would love to delay or forego.  On the opposite side it is a scary time.  A GE does not want to get into a fire fight with Google.  Google is a disruptive company which wins by changing the existing battlefield.  No one wants to fight on Google’s battlefield, it is an effort in futility.  As always it is driven by the need to collect information, which fuels its search business.  How does GE compete?  Try and buy Bing from Microsoft?  When does Microsoft get into this game? Facebook? Twitter?  The winner in the end will be consumers, but as noted earlier it comes at the cost of privacy.

My expectation is in the future you will see more acquisitions like this one, where companies enter into new industry with the intent of disrupting an industries existing business models.  Could an automotive company become a target? Maybe.  Appliance companies? Sure.  At the end of the day it is about where can I get access to more information about user behavior.  As every device gets update and connected more information will become available.  It will make our lives much more convenient, but like all things it will come at a cost.  The Google acquisition of Nest is just the beginning of a much larger play and the only thing guaranteed is it will take billions of dollars to play.

Good Night and Good Luck

Hans Henrik Hoffmann January 17, 2013